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November 11, 2012

Two major national elections – that in the USA and China - have been the focus of considerable attention in recent weeks and their outcome have a very abiding relevance for India and the region.

For India, both the US and China remain critical interlocutors and as per macro economic projections, these three countries will form a distinctive strategic triangle of the largest single state economies by about 2030– which is the equivalent of the near future. Currently the GDP of these three nations is as follows; US –under US $17 trillion; China – below $7 trn; and India below $2 trn. A Goldman Sachs estimate projects that by 2030, the line-up would be as follows: China – $25.6 trn; USA – $22.8 trn; and India – $6.68 trn.

However in end 2012, the domestic mood in these three countries is one of considerable apprehension about the future. Grave economic, fiscal and governance challenges confront the leadership in Washington DC, Beijing and Delhi with the attendant socio-political discontent that augurs ill for the next election.

Equitable and inclusive socio-economic growth has eluded all these three societies and this has been aggravated by the global economic slowdown which is still taking it toll in the relatively insulated European Union. For the USA, the immediate priority is to deal with a looming 'fiscal-cliff' which will come into effect on January 1, 2013. Unless some radical legislative consensus is arrived at, current US law mandates that hefty tax increases and certain spending cuts will become mandatory to progressively reduce the huge budget deficit.

President Barack Obama and the US Congress will be tested for their political perspicacity and the integrity of the decisions taken will have a bearing on the credibility and vitality of the USA as the world's leading power. Experts aver that the scale of the public debt the USA has now accumulated - US$ 11. 4 trillion (October 2012 ) which is almost 72 percent of total US GDP - is just too colossal to handle. The oppressive strait-jacket situation that now obtains is that the event - the inevitability of the 'fiscal-cliff' cannot be allowed to happen for the consequences would push the USA into a disastrous tail-spin with no macro-tools for redress ; and on the other hand – the problem is so big that it cannot be tackled with the current orientation of the US political establishment, the vested corporate interests and the life-style choices of the American citizen.

The picture in Beijing is differently bleak. Currently the top Chinese leadership represented by the new team – Xi Jinping and Li Kaoqing - have to address growing disenchantment among their billion plus citizens, of whom half as many have become vocal netizens who give vent to their frustration through cyberspace and social media. In the wake of a series of high-profile corruption scandals, the disparity between the rich and the poor has visibly come into the open in a society that prizes opaque compliance from its people.

The 1989 Tiananmen experience is the socio-political 'fiscal-cliff' equivalent that Beijing has to avoid – at any cost. That the amber lights are flashing in the Chinese Communist Party (CCP) apex is evident in the fine-print of the Hu Jintao speech at the November 8th transition. President Hu in a very uncharacteristic manner cautioned his colleagues : ""We cannot take the old road of seclusion and stagnation, nor can we take the 'wicked way' of changing our banner."

The Hu Jintao speech has elicited enormous comment within China and among China watchers outside the country. Will Xi Jinping – who represents the fifth generation CCP leadership adapt to a more progressive path to deal with China's complex socio-economic challenges? The global economic slowdown and the consumption depression in the USA and EU has adversely impacted China's hyper-export profile. A large component of China's phenomenal 10 percent plus GDP growth rate of the last 15 years has been enabled by its export profile. This in turn led to China's GDP quadrupling during the Hu Jintao decade.

The improvement of socio-economic indicators for a billion Chinese and hence their societal stability was pegged to the 10 percent plus GDP growth and this is now shrinking. The first half of 2012 registered below 8 percent and while this an impressive figure when compared globally (or for that matter India ) , Beijing is worried. What are the policy paths available to the Xi-Li combine ?

A return to the conservative Maoist ideology – which has many supporters in the CCP will lead to one kid of Chinese orientation in relation to its principal interlocutors – USA, Japan and India. The Hu Jintao reference to the strategic imperative for China to become a credible maritime power has already led to a flurry of interpretations in the USA and Japan.

UPA 2 which has an effective political life of about a year from now will have to deal with an Obama team and a Xi-Li combine that has these complex challenges to address in their respective domestic context. In the interim the intractable strategic and security basket that includes Af-Pak 2014, Iran, Syria and the East Asian island disputes amongst others will continue to simmer.

Obama, Xi (or Li) and Manmohan Singh will have their first meeting as part of the East Asia Summit in Cambodia in mid November. Can they agree that a major global structural review is called for to ensure that their triangular relationship is harmonized with the opportunities of this century?

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